Accounting Part 2: How To Lose a Billion Dollars

Have you ever had one of those moments when someone says something that you have long known to be true but they way they say it makes the knowing it both stronger and clearer in an instant? This happens to me from time to time when a single turn of phrase can open up an idea more powerfully than an entire novel. This was the case recently when I was talking to a German friend with lots of experience in the Moldovan financial system who said the following.

"in America or Germany the fiscal authorities are primarily concerned with uncovering fraud. In Moldova they don't look for fraud, they look for errors."

minus the unibrow, this was me

For anyone who hasn't spent a lot of time dealing with this system day in and day out, or who has never dealt with a system like the US has let me explain a bit. In America we have what is called a "voluntary compliance" system for taxes. This means that you are expected to pay your taxes honestly and, by and large, to figure out what you owe yourself. The IRS (America's fisc for my Moldovan friends) is tasked with collecting this money and seeking out people who try to evade taxes and punishing them. Via audits, etc they seek out fraud and attempt to put tax evaders in jail. By and large they manage to do this and have managed to take down numerous major criminals and outlaws who previously avoided attempts by police, rivals and vampires to end their reign.

pictured: (left) Al Capon only hours before issuing the order that instigated "Bloody Tuesday" which rid Chicago of Vampires. (right) some asshole who thought he was too good to pay taxes.

The IRS is a much maligned organization (sometimes a too bit harshly) and rarely engenders any love from the American public. That said, what they do makes sense at some level. They look at your filings to assess if they represent a "best and good faith effort" to pay what you owe. They know that everyone makes mistakes and that the complexities of US tax code make it impossible for everyone to file a perfect return. In fact, while preparing a book supporting the Fair Tax Neil Bortz asked 7 US accounting firms and the IRS to prepare his tax return. None of the 8 returns were the same and all had mistakes. Knowing this, no one is expected to get it right 100% of the time and the IRS doesn't put you in jail for errors but just asks that you pay the difference when they are pointed out (plus penalties, etc).

Moldova is not like this. As I mentioned in Accounting Part 1 Moldova has about 5000x more accounting overhead than a similar US company seeking to buy something as innocuous as a single onion. What I may have failed to mention in part 1 is that, as a business owner, you live in constant fear of making an error on one of the hundreds of documents you need to file in order to buy that onion because if you do you are fucked. You see they have the broad authority to come after you as dictated by a law that no one knows and fewer understand. In short, that onion will eventually see you facing the option of stringent legal consequences (unspecified and unknown by design) or paying a bribe. The complexity of the system, just like in America, means that there will be lots of mistakes. Unlike in America Moldovan government officials use that complexity as a tool to bend you over a barrel for bribes. The finding of errors lines their pockets and that is the focus of both the laws and the official implementing them.

Enter the heist of the century.

You know what happens when a system is geared towards extracting pennies in bribes from transactions as small as $2? Someone steals literally everything because NO ONE is watching. Am I being over dramatic here? you decide. In case you haven't been following news from Moldova someone stole about one billion dollars from three of the country's largest banks last November causing the government to inject emergency capital into the banks to cover the loss and stave off a banking system collapse. Here are a few links to get you caught up:

So what's a billion dollars? Well in Moldova it's 1/8 of the country's GDP... or it was before the heist. You see, much like Al-Qaeda post 9-11 the person who stole this cash realized that not only were they about to do something terrible and destabilizing but that this fact was awesome insider trading information. After the heist the Moldovan Lei collapsed and in that moment the person who stole the money in the first place made untold amounts of additional money by short selling the Lei on currency exchanges. When the dust settled from all of this 1 billion dollars was no longer 1/8 of the country's GDP - it was 1/5. That's right, they stole so much money that the value of money itself was altered.

that's like... a LOT of money

On face value this heist tied with the previous largest of all time by cash value. Considering that the other first place ranking is Qusay Hussein (yes, THAT Hussein) and that his "arrest" by the 101st airborn looked something like this:

You could say that this is pretty historic company for Moldova's mastermind to be in. It doesn't really do it justice though. Simply put, a billion dollars is more money that I will likely ever see. It's objectively a lot. But 1/8 of a country's economy? That's subjectively a SHITFUCKINGMOTHERLOADHOLYHELLHOWCOULDTHATEVERHAPPENIT'SFARFARTOOMUCHTOBEPOSSIBLE ton. Otherwise known as "oodles of money."

which is somewhat better to be in possession of than the pictured "oodles of heartburn"

For perspective, if someone stole 1/8 of the US GDP that would equal about 2 trillion dollars or, about 2x the amount the United States has spent on the Iraq and Afgan wars combined. Given that perspective the financial turbulance that Moldova faced is pretty understandable. What is not particurally understandable is how little people in Moldova seem to care. Granted, this theft took place exactly during a heated election and the weeks following it's revelation were largely a "hold onto your buts" kinda ride (many stores closed or prices literally changed between the time you picked an item up and when you got to the register). That said, far to many people have just shrugged and said "well we knew they were corrupt" (following the widespread belief that the culprits were the country's political leaders). This past weekend there was a rally in Chisinau about holding someone... literally anyone, accountable but much of the country just shrugged and went about life.

behold! the tapestry of apathy!

Moldova, I am saying this as a friend. As someone who has invested time, money, blood, sweat and not a few tears here. As an owner of a Moldovan business and a legal long term resident. This is why we can't have nice things. It's not about the fact that the laws penalize businesses while failing to punish thieving oligarcs. It's not about the fact that it takes 6 government issued documents to buy a head of lettuce. It's not about the system being rigged to steal, via bribery, 'dollars' from someone making just over a hundred dollars a month while letting millionaires steal billions. It's not even about how silly and archaic laws make everyone's life just a bit harder as they try and make an honest living. It's about what you are doing about it. Someone stole 1 billion dollars from Moldova because the system is broken and no one is trying to fix it. No one wants to go into the tough job of looking over every single fiscal law and asking "do we need this?" and "does this create a pretext for bribe collection?" and "are we seeking to punish criminals or punish those who misunderstand it?" Well someone needs to.

Since I first wrote this post and today there has been a major protest in Chisinau over this theft (I would like to make a witty joke about how our OSE editorial process is long and nuanced but in reality we're just slow). Keep it up team. In a second update Moldova.org explained that somewhere between 10000 and 40000 people went to the protest (counting is hard) and while that's amazing more is needed. Many people are likely to say "nothing will ever change" but that's just because...

In honor of the 4th I will end on this note. Leia tells Admiral Tarkin that "The more you tighten your grip, the more star systems will slip through your fingers." The Moldovan Government could learn from this. 6 documents for an onion that are checked, rechecked and ultimately lost (with their loss blamed on you, the business owner) is just the kind of tight grip that let's billions of dollars slip away into the ether with no one noticing. Put differently, in the immortal words of 38 Special,

(Site Admin, Entrepreneur, Contributor)
David is a native of the great Commonwealth of Virginia and lived there through high school in Fairfax County. After high school he pursued a degree in Electrical Engineering from the Georgia Institute of Technology in Atlanta Georgia. During his studies his traveled to Singapore for a semester and gained a respect and love for traveling and immersing in different cultures. After graduation David joined the United States Peace Corps and was posted first in Kazakhstan as an English Teacher and later in Moldova as a Community and Organizational Development Consultant.

When not working on his startup David can be found maintaining various web based side projects (check out: salutmoldova.org) and working on his 1986 Lada Жигули 2101 named Надя (Nadia).